Convention method

The applicable convention determines the portion of the tax year for which depreciation is allowable during a year at the property is either placed in service or disposed of.

The convention you use determines the number of months you can claim depreciation in the year you:

• place the property in service

• or disposed of the property.

To determine the correct convention you must know the type of property and when you place the property in service.

There are three types of convention methods:

Half-Year Convention

This convention applies to all property unless the mid quarter convention or mid month convention applies. It treats all property placed in service (or disposed of) during any tax year as placed in (or disposed of) on the mid-month of that tax year.

Mid-Quarter Convention

Use this If:

• Mid-month convetion doesn't apply &

• The total depreciation basis for property placed in service in the last 3 months of the year is more than 40% of all basis of all property placed in service for the entire year.

Mid-Month Convention

Applies to:

All property placed in service or disposed of during a month is treated at the mid point of the month.

• All non-residential rental property

• Residential rental property

• All railroad grading or tunnel bore

• All property placed in service or disposed of during a month is treated at the mid point of that month.